When a company produces more units than it sells,absorption costing profit will exceed variable costing profit.

Question

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing costs in the cost of goods sold and ending inventory, while variable costing only includes variable manufacturing costs in the cost of goods sold. When a company produces more units than it sells, absorption costing will allocate a larger portion of fixed manufacturing costs to each unit, resulting in higher inventory valuation and lower cost of goods sold compared to variable costing. Therefore, absorption costing profit will exceed variable costing profit in this situation.

When a Company Produces More Units Than It Sells,absorption Costing